It simply states that capital market perfection, consumer rationality, and menu costs together are sufficient to guarantee that firms will not be able to move prices at will.
In the earlier section I demonstrated that capital market perfection, consumer rationality, and menu costs require all prices in an industry to move together.
Weak gross substitutability, together with consumer rationality, is known to be sufficient for the global stability of Walrasian equilibrium .
In this paper I combined the assumptions of capital market perfection, consumer rationality, and menu costs and showed that they require all prices in an industry to move together.
That is, prospect theory explains behavior that cannot be explained through assuming consumer rationality, the maximization of a stable utility function.
The empirical results support prospect theory and are contrary to two conclusions from neoclassical models of consumer rationality. Showing cross-cultural robustness, the results hold across three ethnic groups in the test area, Guam.
The tests juxtapose the conclusions from prospect theory with two conclusions from neoclassical consumer rationality. Neoclassical consumer rationality suggests that:
Neo-classical consumer rationality predicts a higher minimum acceptable subsidy on two grounds: the subsidy is in the future rather than at the time of purchase, and the receipt of the subsidy is subject to some risk of default.
In my opinion, the book delivers much less than the jacket promises: "how the architecture and evolution of the mind affect human value formation, consumer behavior, and consumer rationality
." It is important to remember that when the "car was shunted onto the wrong track" criticism is made, there were probably some excellent reasons why that particular route was chosen.